Market competition and liquidity risk

Lessons from Malaysia

Research output: Contribution to journalArticle

Abstract

This study investigates the influence of market competition (MC) on liquidity risk (LR) for conventional and Islamic banks in Malaysia. The research analyses two data sets comprising 17 Islamic and 27 conventional banks over the period of 1996-2015 using panel regression estimations. MC is measured using the Herfindahl-Hirschman index, concentration ratio, and entropy index. Meanwhile, LR is measured by the traditional and BASEL III measures using current asset to current liability ratio and net stable funding ratio, respectively. Market competition among Islamic banks has a significant positive relationship with liquidity risk. By contrast, results for conventional banks are inconclusive. This result indicates that Islamic banks need a certain degree of market power to manage liquidity risk. Thus, policy makers, regulators, and industry players should utilize a unique framework for Islamic and conventional banks when strategizing liquidity risk management. This study is the first comprehensive empirical research that compares the MC-LR relationship between Islamic and conventional banks using both traditional and BASEL III liquidity risk measures.

Original languageEnglish
Pages (from-to)485-499
Number of pages15
JournalInternational Journal of Economics and Management
Volume12
Issue number2
Publication statusPublished - 1 Jan 2018

Fingerprint

Market liquidity
Malaysia
Liquidity risk
Market competition
Islamic financial institutions
Panel regression
Liability
Entropy
Politicians
Risk measures
Market power
Empirical research
Funding
Concentration ratio
Strategizing
Risk management
Industry
Assets
Herfindahl-Hirschman index

Keywords

  • Banking institutions
  • Liquidity risk
  • Market competition

ASJC Scopus subject areas

  • Business and International Management
  • Economics, Econometrics and Finance(all)
  • Strategy and Management

Cite this

Market competition and liquidity risk : Lessons from Malaysia. / Abdul Rahman, Aisyah; Jusoh, Nur Aida; Mohammed, Nafisah; Mohd Amin, Syajarul Imna.

In: International Journal of Economics and Management, Vol. 12, No. 2, 01.01.2018, p. 485-499.

Research output: Contribution to journalArticle

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